Howard harvests Iraq wheat scandal

John Howard denies his Government was aware of kickbacks paid to Saddam Hussein during the oil-for-food programme. Picture / Reuters

For the first time in 23 years, an Australian Prime Minister this week fronted a commission of inquiry into allegations that could, in theory, have serious repercussions for his Government. In practice, as former Labor Leader Bob Hawke demonstrated in 1983 when he fronted a royal commissioner, someone else will almost certainly cop the flak.

Hawke's appearance in the 80s followed revelations that a Soviet intelligence officer had contact with senior Labor figures: potential political dynamite in the paranoid days of the Cold War. There was embarrassment, certainly, but not espionage, and neither Hawke nor his Government was dented.

Hawke would have calculated the risk before he set up the commission, just as Prime Minister John Howard would have before he appointed Terence Cole QC to head an inquiry into allegations monopoly wheat trader AWB Ltd had paid illicit kickbacks to the regime of former Iraqi dictator Saddam Hussein under the United Nations' disgraced oil-for-food programme.

The inquiry, which adjourned for about two weeks following Howard's appearance on Thursday, has established that AWB did channel money to Hussein through a Jordanian front company during the period Australia was preparing to go to war against Iraq. What it has not been able to do is show that senior officials, ministers or Howard knew that the payments had been made, even if the all-but-universal opinion is that their failure to do so demonstrated monumental incompetence somewhere along the line.

Howard is coping with the flak. He is already making a virtue of the inquiry's revelations, comparing his own readiness to expose his Government and officials to public scrutiny with other countries whose more than 2000 companies helped contribute US$1.5 billion ($2.4 billion) in bribes to Saddam: "Australia alone has established an inquiry, a public inquiry, with the powers of a royal commission."

The inquiry's terms of reference exclude the role of ministers and departmental officials, the target of constant criticism by Labor and a range of legal experts, and the subject of an open letter this week to Attorney General Philip Ruddock by 22 legal academics and lawyers.

But Howard says Commissioner Cole has the power to make a finding of fact, and can say whether he believes ministers were complicit in corrupt behaviour by AWB, or failed in their duty to ensure that Australian companies complied with UN sanctions.

Cole has also said that he would ask for an extension of his terms of reference if there was evidence that people outside the existing terms were guilty of federal offences.

Opinion polls show most Australians do not believe the Government was completely unaware that AWB - one of the nation's biggest exporters with close personal and political links with the ruling Coalition - was paying kickbacks totalling about A$290 million ($341 million) to Saddam.

But in the absence of direct evidence the scandal is gaining little political traction in the suburbs, although it could add cumulatively to the roll of sentiment against Howard that already embraces industrial relations and a range of other key areas such as health, education and welfare.

How hard this will hit the Government will depend heavily on how well Labor can get over its internal agonies and develop an effective opposition.

Elsewhere, the cost has been immense. AWB shares have been battered, legal action by shareholders to recoup millions in claimed losses is under way, and the large Iraqi wheat market - a major Australian customer since 1948 worth hundreds of millions of dollars a year - has been lost to the Americans because of the scandal.

What has emerged from the inquiry is an appalling deafness to alarm bells until the findings of the UN inquiry into corruption in the oil-for-food programme were released last October, naming AWB as the largest single provider of kickbacks to Saddam.

At least part of this was due to AWB's unique position. Until 1999 a statutory marketing body and since 2000 a grower-owned company listed on the stock exchange, it enjoys monopoly wheat export rights defended by a Government politically committed to single-desk exports against strong domestic and international pressure. Said Howard: "AWB had an iconic link with the wheat growers of Australia stretching back to the 1930s, and therefore there was an operating belief that AWB was an organisation of integrity. At no stage did it enter my mind that AWB was corrupt ... "

Another important element was the source of early complaints: the United States, fierce rivals for decades, using their clout in Congress and any other means possible to steal Australian markets. A major sticking point in Australia-US free trade talks was AWB's position as a sole trader, and Canberra saw US allegations of corrupt behaviour as yet another marketing ploy.

But as both the Cole commission and the earlier UN inquiry have clearly shown, AWB was acting corruptly, with the knowledge of senior officers. Howard conceded AWB "systematically deceived" the Foreign Affairs and Trade Department, and other agencies.

In essence, AWB paid Saddam to keep its market. Trade with Iraq had been embargoed by the UN after the first Gulf War, but with mounting evidence of huge human suffering the UN set up the oil-for-food programme in 1995. This allowed Saddam to exchange oil for payments eventually totalling US$65 billion, paid into a UN bank account. After deducting war reparations and costs for the military coalition blockading the Gulf, the balance was forwarded to Iraq, where 60 per cent of the population lived on the rations it provided.

In 1999 Saddam devised a plan to milk the programme, levying a secret 10 per cent kickback as an "after-service fee" on all contracts, with payment mandatory before goods could enter Iraq. Suppliers, including AWB, had the cost written into their contract through inflated prices, allowing them to recover the expense from the UN.

AWB's conduit was a Jordanian trucking company, Alia for Transportation and General Trade, which ostensibly trucked Australian wheat into Iraq. In fact, Alia was a front for Saddam, It was a joint venture between Iraqi businessmen Hussain Al-Khawam and his Government, had no vehicles, and simply turned AWB payments over to Iraqi agencies after deducting a small commission. Wheat was transported by Iraqi Government trucks.

The warning bells sounded early, and loud. As early as 2000, there were clear indications of general corruption within the oil-for-food programme - Howard conceded he suspected this by 2002 - and specific complaints of possible AWB kickbacks.

The mountain of documentary and oral evidence accumulated by the Cole inquiry indicates an astonishing level of bureaucratic deafness. No investigations were launched and responsible ministers were not given, did not read, or did not take seriously, 21 specific cables on the subject.

Howard says: "Let me say I defend to the full Mr Downer and Mr Vaile and their ministerial competence ... I do not believe that the judgments that were made by the relevant people and departments at the time, using the test of reasonableness, should be criticised."